Avoiding Gamesmanship in Appointing Property Appraisal Umpires
By George R. Milnes
I recently read an article written by G. Brian Odom, Partner, Zelle LLP, published in Texas Law 360, November 24, 2015. With his permission excerpts of his article are restated here. The similarities of the appraisal process and gamesmanship in appointing umpires frustrates the process in many jurisdictions, several Canadian jurisdictions amongst them.
Regardless of advocacy or impartiality, in the not-too-distant past, appraisers selected by the insured and insurer made a good faith effort to reach agreement on the selection of a neutral umpire to resolve any differences they have regarding the amount of loss. When this happens, the appraisal moves forward without delay. But all too often, if there is already a significant dispute regarding the amount of loss, the designated appraisers are frequently unable to agree on an umpire and court involvement is increasingly required.
Does this appear familiar?
In some instances, appraisers choose not to agree on an umpire based on the simple belief that virtually anyone would be a better choice than the candidates proposed by the opposing appraiser.
Most often an appraisal is to determine the amount of loss.
The most common matter in disagreement is by far the scope of loss to be valued. Unless both parties and their representatives instruct the appraisers and umpire to determine the scope of loss and its valuation, the appraisal should only determine the valuations presented by both parties and leave determining the scope of loss to another forum. See, Kenney v. Johnson Inc. and Unifund Assurance Company, 2020NSSC196
It’s worth noting appraisal has long been utilized as a tool for resolution of disputes over the amount of loss at issue in property insurance claims. Unfortunately, the appraisal process has devolved in recent years. What was once considered an efficient means of resolving insurance claims is now a nonjudicial dispute resolution process largely devoid of procedural rules or ethical guidelines. An entire cottage industry of professional appraisers has emerged, many of whom have learned to manipulate the process for their client’s benefit and their own financial gain. While the appraisal process generally works as intended, appraisal today is often giving rise to more disputes than it ultimately resolves.
The Ontario Insurance Act, s. 148 (2), Statutory Condition 11 states: In the event of disagreement as to the value of the property insured, the property saved or the amount of loss, those questions shall be determined by appraisal as provided under the Insurance Act before there can be any recovery under the contract whether the right to recover on the contract is disputed or not and independently of all other questions. There shall be no right to an appraisal until a specific demand therefore is made in writing and until proof of loss has been delivered.
Statutory Condition 6 outlines requirements for the claim submission.
Prior to 1966, the Insurance Act of Ontario required appraisers and umpires to be competent and disinterested. While that remains the criteria in many jurisdictions it hasn’t been the case in Ontario for more than a half century. Appraisers can be anyone advocating on behalf of the party they represent. The insured and insurer can even represent themselves. The recent case of Campbell v. Desjardins General Insurance, 2020 ONSC 6630 is worth a read.
Only the umpire is required to be impartial, neutral, and independent.
s. 128(3) of the Ontario Insurance Act states: The appraisers shall determine the matters in disagreement and, if they fail to agree, they shall submit their differences to the umpire, and the finding in writing of any two determines the matters.
Courts have given a wide berth to umpires as to how they conduct an appraisal but their role is clearly to address unresolved matters in disagreement as it pertains to valuation only.
Once both parties appoint appraisers and the appraisers select an umpire, able and willing to act, the appraisal process is considered ratified. The parties may change appraisers but not the umpire.